On July 17, 2017, IBM announced that it would allow customers
running z/VM Version 6, Release 3 or higher to license the product
on a sub-capacity basis. Under the sub-capacity licensing
arrangement, IBM customers can purchase licenses for a fraction of
the full machine capacity, which can often reduce costs and
increase flexibility. However, companies should tread carefully
before taking advantage of sub-capacity licensing rules because
many customers learn during an IBM audit that they did not take all
the steps necessary to qualify for sub-capacity licensing.

IBM's default license requirement is that customers must
license the full physical capacity of the machines on which the IBM
product is installed. For z/VM, full-capacity licensing
requires:

If the program is used on any Central
Processors ("CP") on a machine, it must be licensed on
all the CPs on that machine.

If the program is used on any
Integrated Facility for Linux engines ("IFL") on a
machine, it must be licensed on all the IFLs on that machine.

If the program is used only on CPs
you do not count the number of IFLs.

If the program is used only on IFLs
you do not count the number of CPs.

To qualify for sub-capacity licensing, which in essence is an
exception to the default IBM license rules, customers have to
satisfy all of the requirements. The requirement that seems to give
customers the most difficulty is the requirement that the customers
install and configure the IBM License Metric Tool
("ILMT").

Initially, many customers are not aware that they are required
to install ILMT. It is imperative to ensure that the company's
IBM contact is always updated. IBM frequently sends license updates
via e-mail to the customer representative IBM has on file. If the
named representative no longer works for the company, or otherwise
fails to recognize the significance of the notification from IBM,
customers can find themselves with surprising new licensing
obligations.

Even the customers who are aware of the ILMT requirement may
have difficulty qualifying for sub-capacity licensing. Some
customers experience difficulty installing the product on their
infrastructure. Additionally, there are sometimes limited
third-party resources available to assist with troubleshooting an
ILMT implementation. IBM customers should remember that if they
cannot get ILMT properly installed and running in their
environment, they cannot qualify for sub-capacity licensing. Once
ILMT is installed, to use ILMT to track licensing for z/VM, the
customer must install and configure a z/VM Hypervisor Proxy in each
logical partition ("LPAR").

The customers' obligations do not stop when ILMT and the
z/VM Hypervisor Proxy are installed. Depending on a customer's
license agreement, the customer must run an ILMT report either
monthly or quarterly. Upon request, usually during an IBM software
audit, the customer must produce the reports to IBM. For larger
environments, it can take several days to run ILMT reports for the
full environment.

Customers should also validate that the information on the ILMT
report is correct. Customers have reported a variety of challenges
with their ILMT reporting, including that the ILMT reports
incorrectly calculate the number of sub-capacity licenses needed
for certain environments. Because the ILMT report will be the
official data IBM's auditors will use in a software license
review, it is critical for the data to be correct, especially when
it comes to calculating the sub-capacity license numbers.

To qualify for sub-capacity pricing and licensing, customers
must also agree to the z/VM sub-capacity terms and conditions in
the IBM Attachment for z/VM Sub-Capacity Pricing. Additional
requirements include:

Client must be running z/VM V6.3 or
later

Product must be installed on a
supported IBM Z or LinuxONE server; and

Client must have a valid license to
z/VM programs eligible for sub-capacity installed on that server
that has implemented sub-capacity pricing.

Once ILMT is installed and correctly reporting the sub-capacity
license requirements, customers must review each monthly (or
quarterly) report. If the report indicates that the customer does
not own a sufficient quantity of sub-capacity licenses, the
customer must immediately place an order for the required
additional licenses. Failure to correct any reporting errors can
result in unexpected demands for licensing fees during an IBM
software license review.

During an audit, the third party that IBM selects to conduct the
audit will initially ask the customer if it has ILMT installed. If
the customer reports that it does have ILMT installed, the auditors
will ask for the ILMT reports for a period of time, often for the
prior two years. For this reason, customers should always keep
information about when they deployed systems in the environment to
combat any allegations during a software license review that ILMT
was not properly installed in the environment.

If a customer has IBM installed and running on machines that
have ILMT but the customer does not have the required periodic
reports, the auditors will assume that full-capacity licenses are
required for the time period where IBM was installed without ILMT
unless the customer can demonstrate that the installation occurred
contemporaneously with the ILMT installation.

With very few exceptions, if the customer does not have ILMT
installed, that customer will not contractually qualify for
sub-capacity licensing for z/VM. Customers who cannot get ILMT
installed in their environment or who cannot get ILMT to report
correctly will not qualify for sub-capacity licensing and must
continue to license the environment on a full-capacity basis.

Those customers who qualify for sub-capacity licensing are still
not out of the woods. Licensing on a sub-capacity basis can be
complicated. IBM provided a few examples of use cases at https://www-03.ibm.com/systems/z/resources/swprice/subcap/zvm.html.
The examples show that licensing is often complex and that
customers can easily misunderstand the rules to counting.

When customers fail to understand the requirements for
sub-capacity licenses the consequences can be severe. During IBM
software audits, a high percentage of customers who believed they
were able to avail themselves of the benefits of sub-capacity
licenses learn that they have not completed all the requirements.
Those customers must then unexpectedly license the full capacity of
the machines, which increases the costs of the projects
significantly.

IBM customers should carefully review the environments in which
they believe they are entitled to use sub-capacity licenses. Then,
customers should ensure that ILMT is installed and reporting
correctly to reduce the risk that a software license review will
result in significant unplanned licensing costs when the company is
forced to license the full capacity of the systems using z/VM.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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